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Developing countries, including Small Island Developing States (SIDSs) and Least Developed Countries (LDCs), are exceptionally vulnerable to climate change due to their distinct geographical and environmental characteristics. Escalating sea levels and heightened salinity levels imperil freshwater reserves, while warmer ocean temperatures and acidification disrupt water demand, tourism, health services, and fisheries. Concurrently, these countries bear the brunt of water shortages, flooding, and declining water quality. However, significant barriers such as limited financing capacities to fund water security initiatives, exacerbated by a growing debt crisis marked by escalating interest rates and inflation, hinder developmental progress and investments in climate adaptation and mitigation endeavors. Consequently, there arises a critical necessity to harness innovative financial mechanisms to transform these debts into opportunities that support effective climate action. This paper explores the potential of debt-for-climate swaps as a catalyst for advancing transformative wastewater projects, focusing on their strategic deployment to underpin critical initiatives. Through case studies and empirical evidence, the paper elucidates how debt-for-climate swaps can enhance sustainable wastewater management systems in developing countries and delineates best practices for leveraging these mechanisms and the roles and responsibilities of key stakeholders, including governments, policymakers, the private sector, communities, and climate financial institutions. Combining theoretical insights with tangible examples, this paper furnishes a comprehensive framework for harnessing debt-for-climate swaps to enhance water security and resilience in developing countries. It offers actionable strategies for policymakers, practitioners, and stakeholders to navigate the complex terrain of climate change and engender sustainable development.

Climate change is evident around the globe, which requires bold actions now to achieve UN-SDGs and Paris Agreement. The water sector is dominated by public finance and is almost subsidised. In addition, there is an increased risk perception surrounding climate investments in developing countries. Pricing climate risks is a daunting challenge for investors and the private sector, who must estimate the likelihood of various climate scenarios and their implications for physical, liability and transition risks at the firm, project, national, and regional scales. In addition, there is a building momentum to scale up global climate response. To translate this momentum into action will require significantly greater investments, investments in a different set of inclusive assets that address water security, mobilise the private sector and provides sector-based or economy-wide co-benefits to direct and indirect beneficiaries, e.g., job creation, health benefits, improved resilience and scaling knowledge and harmonise data and methodologies. Notably, climate–water finance is facing a dual challenge. It will have to both reduce the present water infrastructure financing gap and ensure that this new infrastructure/asset is low-carbon, resilient to climate change, and meets the goals of the UNFCCC and the Paris Agreement. Therefore, there is a need for a paradigm shift in the way how water asset is defined, developed, and financed. This paper presents this novel approach concept and its content and financial structure that enable treating water as a new asset class to enable private sector investment and ensure providing water for domestic, municipal, and industrial purposes and allows municipalities to scale their water reuse, sanitation, and desalination projects in partnership with the private sector and/or governments. It is increasingly important to treat water as a new asset class, particularly as nations around the world (particularly developing countries) are set to experience an anticipated 40% shortfall in water by 2030 due to climate change, economic recovery and growth, population growth and resource competition. Investment in water could be one of the ways of tackling this deficit by treating water as a new asset class.

The food self-sufficiency policy has always featured as an unquestionable policy objective for Egypt. This is understandable when one considers both the high population growth and the social and political vulnerability associated with a dependence on food imports and world market food prices such as wheat. Intensive agriculture has led to a growing subsidy burden for the Egyptian government. In addition, the agricultural fields in Egypt are commonly distributed with relatively small sizes parcels that usually reduce the reliability of the agricultural sector, particularly in the delta region, to meet the national food policy. On top of that, climate change, through changing weather patterns and increased temperatures, is affecting agricultural yields and thus farmers’ livelihoods. A water profitability analysis was conducted for three governorates in the Nile Delta in Egypt to establish a baseline and assess the net return per unit of water of the main crops in each of these governorates; this can act as a reference of the water profitability of different crops before they are affected by climate change and other internal and external factors. The analysis was based on extensive in-person surveys in each governorate in addition to workshop discussions with farmers. The study has highlighted the impact of a lack of extension services, which limits farmers’ ability to increase their land and water productivity. Farmers with more access to subsidized production inputs managed to achieve higher levels of water profitability even on smaller lands. Finally, we drew from our findings key policy actions to improve water profitability and land productivity for farmers in the Nile Delta to achieve higher levels of food security. This will help build resilient food production systems that are reliable in the face of climate change and other drivers. In addition, an integrated nexus strategy and plan for the inter- and intra-country is recommended to address the challenges related to food and climate security.